Corporate Governance

This series of books addresses issues related to corporate governance including such issues as board composition and nomination, the role of institutional investors, board incentives, risk management and supervision and enforcement.

This review of corporate governance in Chile describes the corporate governance setting including the structure and ownership concentration of listed companies and the structure and operation of the state-owned sector. It then examines the legal and regulatory framework and company practices to assess the degree to which the recommendations of the OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises have been implemented.

This Review of Corporate Governance in Chile is part of a series of reviews of national policies undertaken for the OECD Corporate Governance Committee. It was prepared as part of the process of Chile’s accession to OECD membership.

Chile’s Santiago Stock Exchange constitutes the third largest equity market in Latin America, behind the stock exchanges of Brazil and Mexico, with a relatively high market capitalisation of USD 213 billion for 238 listed firms at the end of 2007 – equivalent to 124 percent of GDP. The market is characterised by low liquidity and quite high ownership concentration of individual firms, usually in the hands of conglomerates or business groups that are also concentrated in number. As of 2002, some 50 major conglomerates had ownership control of more than 70 percent of non-financial listed companies, and 91 percent of total equity in the Santiago Stock Exchange. While liquidity is low, it has been improving, with annual trading volume rising from about 10 percent of GDP in 2002 to about 30 percent by 2007. The free float within the 138 largest and most actively traded firms was estimated at 36 percent in 2007, with virtually all companies having a controlling owner or group.

Chile, with one of the highest market capitalisation levels in Latin America and a relatively small but visible state-owned sector, has seen increasing attention devoted to corporate governance in recent years. The government submitted three important legislative proposals to the Congress to improve private sector and public sector governance during the last two years, two of which were approved by Congress in the second half of 2009. A fourth, related proposal on capital market reform was submitted to Congress in September 2009.

As noted in the Foreword, the Corporate Governance Committee (then known as the Steering Group on Corporate Governance) was requested to examine Chile’s position with respect to core corporate governance features and to provide the OECD Council with a formal opinion on Chile’s willingness and ability to implement the recommendations laid down in the Principles of Corporate Governance and Guidelines on Corporate Governance of State-Owned Enterprises. At the same time, Council requested the Committee to carry out accession reviews on the same basis for four other countries – Estonia, Israel, the Russian Federation and Slovenia.